As I normally like to keep an eye not just on the markets but anything relevant to the field of financial advice, I often find myself reading articles from other financial planners like myself to see if there is anything that has changed, or possibly another way of looking at things. Recently, I was reading up on education fees and it never fails to astonish and also slightly scare me to see how the statistics around the cost seem to be in a never-ending upward spiral at an increasing rate. Seeing as how we can only stretch our earnings so far, the issue of balancing retirement and education needs can leave you feeling deflated if not downright depressed.
I am not going to repeat the figures I was just reading because if you have a heart attack before getting to the end of the article my advice will not likely be able to sink in. Let’ just say that if you fund a four year university bill out of pocket in fifteen or so years (assuming you have small kids now) at an overseas location such as Australia or the US, the total bill is expected to be an exorbitant amount of money.
You may have thought that the nest egg you have so far saved up is a good start, but when reviewing the education situation it can often become clear that even saving at the upper band of what a reasonable amount of your discretionary income would be, you are sure to have a shortfall. This is a fact of life that many, if not most, people are facing in the world today.
We all want to give our children the best opportunity in the world, but when it comes time to prioritising most financial planner agree that retirement needs to take a priority. If you cannot take care of yourself in old age you risk becoming an enormous burden on your children over a potentially long period of time. This will most likely be the period of time where they are trying to save towards their own future liabilities of retirement and education costs.
The difference between the liabilities of retirement and education is that there tend to be more options available to you in order to get to that degree. Most countries provide some sort of financial aid, children can study part time around a full time job, and many employers are even willing to kick in. Military service, while not something I would consider for my own children, is still another route to getting someone else to pick up the tab. Obviously this is less desirable than the old four years of partying it up in a dorm room concept of what going to college is, but the costs today compared to even a decade ago are drastically higher. You can expect that trend to continue. Student loans can also help take the burden off of you while helping the child gain a bit of responsibility, and you can also begin at a young age to try to motivate your children to spire towards academic or athletic scholarships.
Sometimes it can be a good idea to set up separate accounts towards both fees so that you are not tempted to raid your retirement pot to fund an education via a route that realistically you cannot afford. When the time for university comes, you will know exactly how much you can help your children without dipping into the retirement nest egg. There are many ways to greatly reduce the costs of a university fee, such as transferring credits from a cheap community college into a better respected institution. You still end up with the same school on your resume. Knowing how much you have earmarked for it can make it a lot easier to come up with a realistic plan.
David Mayes MBA provides wealth management services to expatriates throughout Southeast Asia, focusing on UK Pension Transfers. He can be reached at david.m@faramond.com. Faramond UK is regulated by the FCA and provides advice on pensions and taxation.
